Dow Gets Bullish, Commodities Iffy

Hope you survived the week! Interesting new signals from my trading setups based on this afternoon's Commitments of Traders data on the latest derivatives positioning. See my latest signals table for the details:

- After being on a bearish signal since late July, my setup for the Dow Jones industrials has turned bullish. This, after the wrong-way large speculators - that's the bright lights at the big investment firms and hedge funds who have wrecked Freedom 55 for the boomers - finally caved in and hit an extreme net short position as a percentage of the total open interest. They were massively bullish in late July, just as the market topped. Now, they have finally thrown in the towel and sit about 1.1 standard deviation below the average of their net position. The trade execution is for Monday's open. My Highly Correlated Markets Rule (see more on it here) says I can take this position because at least one of the two correlated markets - the BKX Bank Index - is also bullish. But I won't execute it without some kind of confirmation on the charts next week because of my temporary decision to trade in combination with technical price action while I finish up some extra testing (see more in this post).

- Meanwhile, my setup for the S&P 500 is still bearish. In fact, the "dumb money" small traders last week were more bullish in comparison to past data than any time in a year for one setup I use and at a two-year extreme for the other one (hitting 2.5 standard deviations above the average on the latter). This week, they are still 1.6 and 2.1 standard deviations above their averages on those two setups. If that's not odd enough, the S&P 500 is highly correlated with the Dow industrials. So if I was getting this bearish signal this week, I wouldn't take it due to my correlated markets rule.

- Oddly enough, on the Nikkei, where the small traders are actually the "smart money" believe it or not - accurately calling tops and bottoms for years - these folks are super-bullish, too. More so than at any time in two and a half years. actually small traders haven't been this bullish in two and a half years. Silver commercial traders are 1.4 standard deviations below the average. So quite the mixed picture overall. I should note, however, the Nikkei isn't strongly correlated with any other of my markets.

- In the commodities, quite a huge turnaround since last week. Keen-eyed readers will recall that last week all five commodities were in the rare position of being bullish. This week, silver has gone bearish because of a sudden rampup in the commercial trader net short position (now -1.4 standard deviations below the average), while platinum and crude have gone to cash. Can't take the silver signal if I wanted to; it's the only bearish one of the bunch at this point. Copper and gold are still bullish.

Hope you have a relaxing weekend, and good luck next week.

TAGS: gold, silver, platinum, crude, copper, Nikkei, BKX, Bank Index, crude oil, S&P 500, SPX, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, out-of-sample testing, walk-around testing